City institutions and their employees paid a whopping £63bn in tax to the Treasury this year, more than any other industry in the UK, new figures published today show.
City firms paid almost £10bn more tax this year than in 2010, despite the stretched trading conditions – contributing more than 12 per cent of the UK’s entire tax take, up from 11.2 per cent in 2010.
Higher levels of corporation tax, employment taxes such as National Insurance and PAYE, and VAT meant financial services firms and their staff paid 18 per cent more tax in this financial year than the last, the figures compiled for the City of London Corporation by PwC show.
Finance firms paid direct tax of £27.6bn, of which £7.2bn was corporation tax, and they collected a further £35.4bn on behalf of their customers and employees.
Banks – the biggest taxpayers in the financial services sector – also paid £3.4bn of extra payroll tax, in the form of the bonus tax levied on their 2009 employee compensation.
Business supporters seized on the figures as evidence of the City’s vital contribution to the UK economy, at a time when European leaders seem determined to stall its growth by imposing a slew of regulations and a new financial transactions tax.
Stuart Fraser, the City of London Corporation’s policy chairman, said the figures “highlight the huge fiscal contribution” the sector continued to make despite the difficult economy.
“London is Europe’s leading international financial and business centre, and the success of UK-based financial services is integral to the success of our counterparts across the Channel,” he said.
“We must be wary of crossing a tipping point when it comes to taxation.
“The European Commission’s own impact assessment highlighted that between 70 and 90 per cent of all derivatives trading could move outside of Europe if a financial transaction tax was implemented.
“We must continue to make the case that such a move would hurt the City, and hurt Europe.”
MP Andrew Tyrie, chairman of the Treasury Select Committee, warned against taxing and regulating the City too harshly.
“These figures demonstrate the continuing importance of financial services to the UK economy. The financial services sector is a great British success story – the kind other countries envy,” he said.
“Bad mistakes have been made in banking. Smart regulation can help remedy those mistakes and create the conditions for success in the future,” he added. “Regulation driven by recrimination won’t help anyone.”
The financial services sector’s 1.1m employees, equivalent to almost four per cent of all UK workers, paid £29.2bn in employment tax this year, or an average of £20,269 per person.
The sector’s employment benefits are not just concentrated in London and the south east either: two thirds of the jobs are outside those regions.
Meanwhile, MPs on the Public Accounts Committee will publish their report next Tuesday into tax deals struck by a number of companies with HM Revenue & Customs to slash their tax bills.
City investment bank Goldman Sachs cut its tax payment by between £5m and £8m as a result of such a “sweetheart deal”.